I bet you had the same reaction when you heard “residential mortgages” – you probably thought they are some new strain of mortgages? Well residential mortgages are our good old mortgages re-packaged with a different name. That makes residential mortgages one of the most reliable, flexible, innovative loan products to frequently find solutions for those individuals for whom loans mean a freedom from financial constraints.
Mortgage rates are still at a fairly low which makes mortgage one of the most sought after product. This also means that one find the best residential mortgages that they can ask for. But it is always with residential mortgages that finding the best mortgage can be like a Gordian knot. The hunt for residential mortgage begins with understanding which mortgage product suits your circumstances. When you know what you want it is easier to shop.
Residential mortgages have different mortgage products depending on the interest rates. The various residential mortgage are – fixed, variable, capped, discounted, cash back, tracker.
Fixed residential mortgages will have a fixed interest rate for a fixed period of time which then changes to variable rate. With Fixed residential mortgage you enjoy the same rate even if the interest rates rise. You have the freedom to plan your budget for you know in advance your monthly outgoings. One of the obvious disadvantage is that you cannot make use of fall in interest rates.
With the Variable rate residential mortgages the interest rate rise and fall according to the changes in the interest rate. This means that if the mortgage interest rates fall, you pay lesser. However, in case the interest rates rise you pay more. Unless, the borrower is capable of paying higher interest rate, they should opt for fixed rate mortgages. Variable rate will be either the lender’s variable rate or any standard rate like the Bank of England’s base rate.
With capped rate residential mortgages you are linked to a variable rate but there is limit up to which rates can rise, known as the cap or the ‘ceiling’. These residential mortgages prevent you from any significant rise in interest rates. Another mortgage on similar lines is cap and collar mortgage where the rate you pay does not fall beyond certain limit.
Discounted rates with Residential Mortgages the payments are based on the rate which is lower than variable rate for a specific period of time. This gives you an opportunity to have lower interest rate especially if you are setting up a new home. Nonetheless, if your payments rise while you are on discount the monthly payments will increase.
With cash back mortgages in place of a discount you get a lump sum or cash back which depends on the amount of mortgage you receive. Monthly payments are linked to a variable rate. This residential mortgage can prove to be very useful contribution by providing cash when you need it. Tracker residential mortgages link your interest rate to some independent rate like Bank of England base rate. The interest rate for your mortgage rises and falls with the independent rate.
The variation with residential mortgages is much more than the above mentioned. Sub-prime residential mortgages are formulated for borrowers with not so good credit. Non-conforming residential mortgages called jumbo loans exceed the set loan limit and enable you to borrow more. However, they have a higher interest rate than other mortgage types.
Real estate prices are rising making home buying not financially feasible for every borrower. Council tenants can become homeowners with Residential mortgage with a specialized product called council right to buy. First time buyers mortgage can help anyone become a homeowner.
Don’t forget to ask for APR (annual percentage rate) because this will decided how much you pay each month. It is the most important question while applying for residential mortgages. Credit score, income, personal financial status are some of the questions you would be asked. Residential mortgages are an individualized concept which makes them unique for every borrower.
With mortgage your home is at risk if you fail to repay. Should you mortgage or not? This is not an easy question to answer. Just take a moment and think of all the information you have and use of this to make an informed decision. It is not a decision that you can’t make if you don’t forget to ask yourself how much you can afford.